Summary
The U.S. federal government is restarting the process of collecting payments from people who defaulted on their federal student loans. Starting January 7, the Department of Education will begin deducting money from the paychecks of those in default. This move returns to pre-pandemic practices after they were paused in 2020.
Key Facts
- The federal government will begin garnishing wages on January 7 for borrowers who have defaulted on federal student loans.
- Before the pandemic, loans in default had been paused, but these practices are resuming.
- About 42.5 million Americans have federal student loan debt totaling about $1.7 trillion.
- Borrowers are considered in default after missing payments for 270 days.
- The Higher Education Act allows up to 15% of a borrower's after-tax income to be garnished until the loan is paid or no longer in default.
- The Treasury Offset Program can intercept tax refunds or other federal payments to recover defaulted loans.
- Missed payments could affect borrowers' credit scores for up to seven years.
- Borrowers have at least 30 days’ notice before wage garnishment starts, which allows time to make alternative repayment plans.
